While all eyes were on the US equity markets Friday, the smart money was selling the long end of US treasuries by the fistful.
Equities sold off 1.5% on the Dow and S&P, spooked by the bond market. The 10yr rose over 6% in yield — a tremendous one-day move — with the 30 yr. selling off slightly less.
As I wrote earlier this week the adults in the room — bond traders — were wasting no time parsing numbers on Feb.’s jobs report. The 300K number told them that Fed chief Janet Yellen and her cohorts would probably start talking serious of a rate rise by June whether it was economically feasible or not.
Politically-inclined Fed governors would push the rate rise issue, if for no other reason than to show continuing recovery of the economy.
The bond pits know they don’t want to get caught on the wrong end of this trade, especially with the leverage used on Uncle Sam’s paper since its been a great trade over the last 6 years
Take your profits and run.
Now what does a 2.25 yield on 10 year say about the US?
We are in the midst of a liquidity war with Europe now that the EU and Draghi have put a date certain on its QEuro. Our borrowing costs will rise as the greenback strengthens.
On Friday the euro was $1.08 to the dollar, which is a far cry from the $1.30 level less than 6 months ago.
We may see parody by April in Paris.